The strategists at JP Morgan said in a note on Wednesday that the stock market could retest recent lows if the central bank pivots away from the rate hike.
The Fed is expected to tighten the economy after hiking rates to control inflation. There will be good news and bad news for markets in the years to come.
The note said that central banks will likely be forced to cut interest rates sometime next year, which will lead to a recovery of asset prices. The good news is that this will require central banks to cut interest rates, and in order for that to happen we will need to see more economic weakness.
A surge in unemployment, a fall in risky asset prices, and general market volatility could be signs of weakness in the stock market. El-Erian said that the yield curve is seeing the steepest inversion since 1981 and that there are signs of stress.
The strategists predicted that the S&P 500 would fall back to a recent low of 3577 if the Fed pushes forward with more rate hikes. Morgan Stanley and Bank of America have predicted that the stock market will bottom in the first half of next year.
Market commentators are worried that the Fed will overtighten the economy and cause a recession. The odds of a recession were "virtually 100%" if the Fed kept hiking rates, according to a Wharton professor.
The Fed needs to tighten even more if it wants to claim a victory on inflation. The central bank is expected to raise rates by 50 basis points in December, according to the St. Louis Fed president. The fed funds rate could be anywhere from 4% to 45%.
All Rights Reserved © 2024
